In Brief: Gas, Gold, Groceries & Aussie Banks

Weekly Reports | Jun 07 2024

Weekly Broker Wrap: UBS sees structural demand change for gold, east coast gas shortages a threat; grocery prices hit rock bottom; and Aussie Banks too expensive to mention.

-East coast gas demand remains below 2023 levels
-UBS expects gold to maintain its shine
-Overseas trends point to a bottom in domestic grocery prices
-Banks are more highly valued than even a bear thought

By Danielle Ecuyer

UBS grabs gold by the “bullish” horns

In a comprehensive analysis of the Australian gold mining sector and the macro drivers behind the gold price, UBS has upgraded its outlook for the price of gold bullion, leading to an across the board upgrading of forecasts and price targets for Australian gold miners.

UBS highlights major structural change for the global gold market.

The analysts note there has been a move towards strong “official” gold purchases, think sovereign states, as well as resilient demand for physical gold (jewelry, for example). 

Increased geopolitical risks and global macro concerns are expected to continue to underpin demand and any gold taken off the market is not considered as coming back to the market in the foreseeable future.

Importantly, investors are seeking out increased gold holdings, with UBS alluding to the fact many are underweight, while the private wealth community and longer-term investors have yet to catch the gold buying train.

The broker envisages the next move higher on the gold price stems from a global re-allocation to the asset class from this group of investors.

In the near term, the US Presidential election is a potential trigger for higher gold prices to move higher on the back of political uncertainty.

Where to for the gold price forecast?

UBS has increased its gold price forecasts by 8% in 2024, 21% in 2025, 34% in 2026, 30% in 2027 and 18% in 2028, to respectively US$2,365/oz, US$2,700/oz, US$2775/oz, US$2600/oz, and US$2,300/oz.

On inspection, the analysts believe upgraded forecasts are between 27%-33% above consensus forecasts over 2025-2027, with ASX-listed gold miners currently priced for bullion trading between US$1660-US$2090/oz.

The broker also raises the long-term real price by US$200/oz to US$1,950/oz against consensus sitting at US$1,780/oz.

In AUD terms, UBS estimates gold reaching $4,000/oz by the end of 2025 which has resulted in material target price rises for Australian gold producers. More details are available in The Broker Call Report of May 5.

Are gas supply disruptions a risk for the winter months?

Jarden has updated its east coast gas tracker with the start of winter and what is traditionally a critical period for the South Australian market.

Weaker gas demand has continued into 2024, with cumulative demand until the end of May down -8% on the previous corresponding period in 2023. Victoria’s demand fell -11% which the broker attributes in part to demand destruction resulting from higher retail gas prices in 2023.

Interestingly, non-gas-powered generation (GPG) demand is also weaker, with the seven day average demand running below 2023 and levels of recent years, consistently.

The market shows cumulative GPG demand is still higher than the comparable period in 2023, but well below the 2019-2022 period which the broker attributes to high coal availability and lack of electricity supply disruption.

Jarden is forecasting 2024 east coast demand to remain some -5% below the 2023 level.

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